Case [2] Wistron vs.

Luxshare:
US China Trade War and its Decoupling Effects from China (SMU971)

1. What are the similarities and differences in the growth strategies of Wistron and
Luxshare? What are the rationales for their strategies?

Wistron and Luxshare are both important players in the electronics manufacturing sector. They
share some similar growth strategies, but one can also notice significant differences in their
approaches.

Similarities in growth strategies:

- Acquisitions: They both try to expand outside of China with more global acquisitions.
Acquisitions are also part of their growth strategy. While Winstron targets large-scale
acquisition to penetrate a new market quickly, Luxshare focuses more on vertical
acquisitions to integrate its operation and build a new product segment, automobile
electronics and audio sets for instance.

- Diversification: They both went from a very specific concentration in one product to a
diversified portfolio of products, thus expanding their areas of expertise. Luxshare started off
as a PC connector productor and diversified into consumer electronics connectors, power
cables, modules, and precision manufacturing. Wistron was initially one of the manufacturers
of Acer and diversified into other categories such as displays, notebook PCs, servers, …

- R&D: Both companies spend a considerable amount in research and development,

especially on IA or 5G technologies, in order to stay competitive and secure major contracts
with clients like Apple.

Differences in growth strategies

- Range of product: While Wistron has a diverse portfolio of products (notebook PCs,
desktop PCs, displays, servers, and medical equipment), they also secured a significant
contract with Apple and become one of their largest suppliers for a wide range of products.
As for Luxshare, they were initially specialized in connectors but slowly expanded to
consumer electronics connectors, modules, power cables and precision products. They also
secured important contracts with Apple, concerning their AirPods and Apple Watch, and
invested heavily in R&D (in wireless charging technology), more than any of their
competitors.

- Geographical location: Wistron had originally taken roots in mainland China but
diversified later on their geographical locations. Their goal was to reduce their reliance on
China by building factories and facilities in India, Mexico, the Czech Republic, Malaysia,
and the Philippines. On the other hand, Luxshare is also based in mainland China but bet on
Vietnam and India to expand their operations overseas.
 - Leadership: Wistron was founded by Simon Lin, who had a major role in the firm’s
strategy. But he handed his company over to someone outside of his family, thus shifting the
company’s dynamic and leadership. As for Luxshare, the founder Wang Laichun remained
the leader of the company and played a pivotal role in its growth.

Rationales for Their Strategies:

1. Diversification: Both Wistron and Luxshare want to diversify their risk and don’t want
to rely too much on a single product or a single client, they want to multiply their revenue
streams and to be able to adapt quickly to changing market conditions.
2. Acquisition: Both companies use acquisition to boost and fuel their growth, but they use
it for different purposes. For Wistron, they can rapidly penetrate new markets and secure
a competitive position. For Luxshare, they can vertically integrate their operations and
widen their product portfolio to secure their tight partnership with Apple.
3. R&D: The two companies both invest a lot of money into innovation and their
technological expertise helped them secure major deals with companies like Apple.
4. Geographical Expansion: The Taiwanese company’s goal was to reduce its reliance on
China to mitigate the effects of the US-China Trade war. In order to do so, they shifted
their production to India, whereas Luxshare expanded to Vietnam and India in addition to
their location in China.
2. Why would Wistron relocate to India as compared to other countries? Was it a wise
decision? What are the challenges to operate in India?

First of all, we know that Wistron was founded 1981 by Mr. Lin and provided Original Design
Manufacturer (ODM) services for Acer and other leading makers in the Information,
Communication and Technology (ICT) industry. At the time of 2013, it was the largest contract
manufacturer for Apple. This is also why Wistron keeps striving for a better way to expand the
business.

Reason to relocate
1. In order to diversify risk and rely less on Chinese production and red supply chain. On the
other hand, developing the supply chain in India also can reduce the impact from the US-China
trade conflict. And the huge Indian market is also a key element.
2. Good timing and government policy. The Indian government had put up a US$6.6 billion
stimulus package to boost local manufacturing, and the addition of Apple would help establish
the ecosystem for a high technology supply chain in India.
3. Taiwan and India relationship improved. India had signed an updated bilateral investment
agreement (BIA) with Taiwan in 2018, providing preferential support for Taiwanese companies.
4. In terms of cash, Wistron had enough cash reserves to make the move to India, and
shareholders applauded this plan. The Indian government welcomed this move and was willing
to support Wistron’s infrastructural requirements.

Challenges
1. In terms of pandemic threat, the unexpected Covid-19 pandemic in early 2020 disrupted
Wistron’s plans. Because the facility ran significantly below its planned capacity, there was a
pay cut of almost 50%. At the same time, most of the Taiwanese senior managers had left India
during the time, with the pay issue unresolved. In December 2020, angry workers ransacked the
facilities, causing serious damage.
2. Wistron relocates the resource focus more on new business and high value-added products.
Manufactured for low end models is not the main focus. Reinvesting in AI, IoT, and 5G to
develop more opportunities.

However, if we see from now, maybe Wistron did not need to relocate to India and can find other
countries to manufacture as well. But back at that time, Indian labor force and huge market
demand became the main factor for Wistron to relocate from China. Plus India welcomed
Taiwanese firms to invest at that time. Therefore, how Wistron manages their resources to have a
strategy from a global perspective is important.
3. Why would Luxshare acquire Wistron? Was this a good deal for Wistron and Luxshare
respectively?

To be more precise, Wistron is only selling its Chinese operations to Luxshare, including its
iPhone manufacturing plant. Let's explore the reasons why Luxshare made that decision and
assess whether it was a good deal or not for both companies.

Why Luxshare Acquired Wistron's Chinese Operations:

1. Strategic diversification: Luxshare wants to position themselves as a leader in the

electronics manufacturing industry. By acquiring Wistron's Chinese operations, they can
expand their presence into the market, their product range and manufacturing abilities.
2. New Customer opportunities: Luxshare had the opportunity to attract new contracts,
especially with the iPhone manufacturing plant. They gained access to high-profile
clients that could lead to major growth in Luxshare's revenue and market position.
3. Supply Chain Integration: Luxshare aims to become an assembler rather than a simple
manufacturer. With the acquisition, they have additional facilities and expertise to further
integrate their supply chain operations.
4. Market penetration: Luxshare can also expand its market presence in China, which is
still a pivotal market for electronic devices manufacturing.

Was this a good deal:

- For Wistron: The aim of selling its Chinese operations to Luxshare was to mitigate the
risk of the US-China trade war, to rely less on China for their supply chain and production
and penetrate the India market. Nevertheless, the transfer to India has been more difficult
than anticipated : because of covid-19, they struggle to transfer the competences from China
to India thus leading to significant labor strikes. Whether it was a good deal or not for them
depends on the financial impact on Wistron's overall performance, but it is not explicitly
discussed in the article.

- For Luxshare: The acquisition of Wistron's Chinese operations could have a positive
impact on Luxshare’s growth and market position, especially since they gained access to
Wistron's customer base and contracts, Apple in particular. However, challenges still remain
concerning their ability to integrate these newly acquired facilities in their existing operations
and leadership style.

It is still too soon to determine whether it was a good deal for either companies, that would
depend on numerous factors such as revenue, integration success and long-term strategic
benefits.